Kindred Healthcare Accelerates Repositioning Strategy Through $187 Million
Agreement to Sell 17 Non-Strategic Facilities Outside Integrated Care
Markets
Company Expects the Transaction will be Accretive to Future Earnings as $180
Million of Net Proceeds are Reinvested in its Integrated Care Markets and
Growing Home Health and Hospice Business
Transaction Expected to be Dilutive to 2013 Earnings but Core EPS Guidance
Range of $1.10 to $1.30 for 2013 Maintained
Business Wire
LOUISVILLE, Ky. -- April 25, 2013
Kindred Healthcare, Inc. (the “Company” or “Kindred”) (NYSE:KND) today
announced that it has signed a definitive agreement to sell 17 non-strategic
facilities (the “Facilities”) for $187 million to an affiliate of Vibra
Healthcare, LLC (“Vibra”). Each of the Facilities is outside of Kindred’s 21
designated Integrated Care Markets.
The Company expects that the after-tax net proceeds from the transaction,
including transaction costs, will approximate $180 million. In the near term,
Kindred intends to use the net proceeds to pay down the outstanding balance
under its existing revolving credit facility. Over time, these proceeds will
be reinvested in the Company’s Integrated Care Markets and used to finance
home health and hospice acquisitions. At March 31, 2013, the Company’s
borrowings on its revolving credit facility approximated $345 million and its
available capacity approximated $400 million.
The Company expects the transaction will be accretive to future earnings as
the proceeds are reinvested in its Integrated Care Markets and growing home
health and hospice business, Kindred at Home. While the transaction will be
dilutive to earnings in 2013, management is maintaining the Company’s core
earnings per diluted share guidance range of $1.10 to $1.30 for continuing
operations for the full fiscal year.
“We believe that this transaction significantly advances our repositioning
strategy, strengthens our financial position and immediately enhances
shareholder value. The trading multiple value of these assets is significantly
higher than the market currently attributes to our common stock and the
substantial after-tax proceeds will be deployed to grow our future earnings.
This tax-efficient transaction allows us to sharpen our focus on our
Integrated Care Markets, provides further capital to expand our home health
and hospice operations and reduces our lease obligations, our most expensive
form of debt,” said Paul J. Diaz, Kindred’s Chief Executive Officer.
The Facilities consist of 15 transitional care hospitals (licensed as
long-term acute care hospitals) containing 1,052 licensed beds, one inpatient
rehabilitation facility containing 44 licensed beds and one skilled nursing
facility containing 135 licensed beds. Six of the transitional care hospitals
and the one skilled nursing facility are owned facilities. The remaining
Facilities are leased. The Facilities generated revenues of approximately $289
million and earnings before interest, income taxes, depreciation and
amortization of approximately $20 million (including the allocation of
approximately $9 million of overhead costs) for the year ended December 31,
2012. The Facilities had aggregate rent expense of approximately $14 million
for the year ended December 31, 2012.
The transaction is subject to Vibra finalizing its financing for the
transaction and to regulatory approvals and other conditions to closing,
including but not limited to, the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. Kindred
expects to complete the transaction through multiple closings occurring during
the third and fourth quarters of 2013 as these conditions are satisfied. In
connection with the transaction, the Company expects to record a pretax loss
that could approximate $100 million, including a significant write-off of both
goodwill and other intangible assets allocable to the disposed operations.
RBC Capital Markets acted as exclusive financial advisor to Kindred on the
transaction.
Forward-Looking Statements
This press release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements regarding the
Company’s expected future financial position, results of operations, cash
flows, financing plans, business strategy, budgets, capital expenditures,
competitive positions, growth opportunities, plans and objectives of
management and statements containing the words such as “anticipate,”
“approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,”
“should,” “will,” “intend,” “may” and other similar expressions, are
forward-looking statements. Statements in this press release concerning the
Company’s business outlook or future economic performance, anticipated
profitability, revenues, expenses or other financial items, and product or
services line growth, together with other statements that are not historical
facts, are forward-looking statements that are estimates reflecting the best
judgment of the Company based upon currently available information.
Such forward-looking statements are inherently uncertain, and stockholders and
other potential investors must recognize that actual results may differ
materially from the Company’s expectations as a result of a variety of
factors, including, without limitation, those discussed below. Such
forward-looking statements are based upon management’s current expectations
and include known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the
Company’s actual results or performance to differ materially from any future
results or performance expressed or implied by such forward-looking
statements. These statements involve risks, uncertainties and other factors
discussed below and detailed from time to time in the Company’s filings with
the Securities and Exchange Commission.
In addition to the factors set forth above, other factors that may affect the
Company’s plans, results or stock price include, without limitation, (a) the
receipt of all required regulatory approvals and the satisfaction of closing
conditions to the transactions discussed above, (b) the impact of healthcare
reform, which will initiate significant changes to the United States
healthcare system, including potential material changes to the delivery of
healthcare services and the reimbursement paid for such services by the
government or other third party payors, including reforms resulting from the
Patient Protection and Affordable Care Act and the Healthcare Education and
Reconciliation Act (collectively, the “ACA”) or future deficit reduction
measures adopted at the federal or state level. Healthcare reform is affecting
each of the Company’s businesses in some manner. Potential future efforts in
the U.S. Congress to repeal, amend, modify or retract funding for various
aspects of the ACA create additional uncertainty about the ultimate impact of
the ACA on the Company and the healthcare industry. Due to the substantial
regulatory changes that will need to be implemented by the Centers for
Medicare and Medicaid Services (“CMS”) and others, and the numerous processes
required to implement these reforms, the Company cannot predict which
healthcare initiatives will be implemented at the federal or state level, the
timing of any such reforms, or the effect such reforms or any other future
legislation or regulation will have on the Company’s business, financial
position, results of operations and liquidity, (c) the impact of final rules
issued by CMS on August 1, 2012 which, among other things, will reduce
Medicare reimbursement to the Company’s transitional care (“TC”) hospitals in
2013 and beyond by imposing a budget neutrality adjustment and modifying the
short-stay outlier rules, (d) the impact of final rules issued by CMS on July
29, 2011 which significantly reduced Medicare reimbursement to the Company’s
nursing centers and changed payments for the provision of group therapy
services effective October 1, 2011, (e) the impact of the Budget Control Act
of 2011 (as amended by the Taxpayer Relief Act) which will automatically
reduce federal spending by approximately $1.2 trillion split evenly between
domestic and defense spending. The automatic 2% reduction on each claim
submitted to Medicare began on April 1, 2013, (f) the impact of the Taxpayer
Relief Act which, among other things, reduces Medicare payments by 50% for
subsequent procedures when multiple therapy services are provided on the same
day. At this time, the Company believes that the new rules related to multiple
therapy services will reduce the Company’s Medicare revenues by $25 million to
$30 million on an annual basis, (g) changes in the reimbursement rates or the
methods or timing of payment from third party payors, including commercial
payors and the Medicare and Medicaid programs, changes arising from and
related to the Medicare prospective payment system for long-term acute care
(“LTAC”) hospitals, including potential changes in the Medicare payment rules,
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
and changes in Medicare and Medicaid reimbursement for the Company’s TC
hospitals, nursing centers, inpatient rehabilitation hospitals and home health
and hospice operations, and the expiration of the Medicare Part B therapy cap
exception process, (h) the effects of additional legislative changes and
government regulations, interpretation of regulations and changes in the
nature and enforcement of regulations governing the healthcare industry, (i)
the ability of the Company’s hospitals to adjust to potential LTAC
certification and medical necessity reviews, (j) the impact of the Company’s
significantly increased levels of indebtedness as a result of the RehabCare
Group, Inc. acquisition on the Company’s funding costs, operating flexibility
and ability to fund ongoing operations, development capital expenditures or
other strategic acquisitions with additional borrowings, (k) the Company’s
ability to successfully pursue its development activities, including through
acquisitions, and successfully integrate new operations, including the
realization of anticipated revenues, economies of scale, cost savings and
productivity gains associated with such operations, as and when planned,
including the potential impact of unanticipated issues, expenses and
liabilities associated with those activities, (l) the failure of the Company’s
facilities to meet applicable licensure and certification requirements, (m)
the further consolidation and cost containment efforts of managed care
organizations and other third party payors, (n) the Company’s ability to meet
its rental and debt service obligations, (o) the Company’s ability to operate
pursuant to the terms of its debt obligations, and comply with its covenants
thereunder, and its ability to operate pursuant to its master lease agreements
with Ventas, Inc., (p) the condition of the financial markets, including
volatility and weakness in the equity, capital and credit markets, which could
limit the availability and terms of debt and equity financing sources to fund
the requirements of the Company’s businesses, or which could negatively impact
the Company’s investment portfolio, (q) national and regional economic,
financial, business and political conditions, including their effect on the
availability and cost of labor, credit, materials and other services, (r) the
Company’s ability to control costs, particularly labor and employee benefit
costs, (s) increased operating costs due to shortages in qualified nurses,
therapists and other healthcare personnel, (t) the Company’s ability to
attract and retain key executives and other healthcare personnel, (u) the
increase in the costs of defending and insuring against alleged professional
liability and other claims and the Company’s ability to predict the estimated
costs related to such claims, including the impact of differences in actuarial
assumptions and estimates compared to eventual outcomes, (v) the Company’s
ability to successfully reduce (by divestiture of operations or otherwise) its
exposure to professional liability and other claims, (w) the Company’s ability
to successfully dispose of unprofitable facilities, (x) events or
circumstances which could result in the impairment of an asset or other
charges, such as the impact of Medicare reimbursement regulations that
resulted in the Company recording significant impairment charges in 2012 and
2011, (y) changes in generally accepted accounting principles or practices,
and changes in tax accounting or tax laws (or authoritative interpretations
relating to any of these matters), and (z) the Company’s ability to maintain
an effective system of internal control over financial reporting. Many of
these factors are beyond the Company’s control. The Company cautions investors
that any forward-looking statements made by the Company are not guarantees of
future performance. The Company disclaims any obligation to update any such
factors or to announce publicly the results of any revisions to any of the
forward-looking statements to reflect future events or developments.
About Kindred Healthcare
Kindred Healthcare, Inc., a top-125 private employer in the United States, is
a FORTUNE 500 healthcare services company based in Louisville, Kentucky with
annual revenues of $6 billion and approximately 78,000 employees in 46 states.
At December 31, 2012, Kindred through its subsidiaries provided healthcare
services in 2,203 locations, including 116 transitional care hospitals, six
inpatient rehabilitation hospitals, 223 nursing and rehabilitation centers, 27
sub-acute units, 101 Kindred at Home hospice, home health and non-medical home
care locations, 105 inpatient rehabilitation units (hospital-based) and a
contract rehabilitation services business, RehabCare, which served 1,625
non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired
Healthcare Companies for five years in a row, Kindred’s mission is to promote
healing, provide hope, preserve dignity and produce value for each patient,
resident, family member, customer, employee and shareholder we serve. For more
information, go to www.kindredhealthcare.com.
About Vibra Healthcare
Vibra Healthcare, LLC is a specialty hospital provider based in Mechanicsburg,
Pennsylvania that is focused on the development, acquisition and operation of
freestanding Long Term Acute Care (LTAC) hospitals, Inpatient Acute Medical
Rehabilitation Hospitals (IRF’s) and outpatient physical rehabilitation
centers. Teams of highly trained specialists lead clinical programs at Vibra’s
specialty hospitals for medically complex patients who suffer from complex
orthopedic, neurologic, stroke, multiple trauma, cardiac and respiratory
conditions. Vibra currently employs over 5,000 employees and owns and operates
over 50 specialty hospitals and outpatient rehabilitation locations in 12
states. For additional information about Vibra Healthcare and its network of
specialty hospitals please visit our website at
http://www.vibrahealthcare.com.
Contact:
Kindred Healthcare, Inc.
Richard A. Lechleiter, 502-596-7734
Executive Vice President and
Chief Financial Officer